Showing posts with label Noteworthy Transactions. Show all posts
Showing posts with label Noteworthy Transactions. Show all posts

Tuesday 5 October 2010

TAQA: US$3.1 Billion Facility Rollover Discussion in Early Stage


Here's TAQA's announcement on the ADX today confirming that it is in the early stages of negotiations to rollover its US$3.1 billion facility maturing next August. 

The press release notes that only US$1 billion has been drawn and that the facility was extended by a 14 member banking syndicate composed of local and international banks.

Monday 4 October 2010

Global Investment House - A Global Leader in M&A?

Everything is relative:  In a small bowl, a small fish can feel very, very big.

On 27 September, Global published a press release in which Mr. Badr Abdullah Al Sumait was quoted as saying:
"نعتز بهذا الانجاز المتمثل في تبوء جلوبل مراكز متقدمة ضمن كبرى بنوك الاستثمار العالمية في مجال الاستشارات المالية لعمليات الدمج والاستحواذ. ويؤكد هذا الإنجاز الدور الذي تلعبه جلوبل على مستوى المنطقة في تقديم خدمات الاستشارات المالية كما ويدعم سياسة الشركة المستقبلية في التركيز على الأنشطة التشغيلية ومن بينها الاستثمارات المصرفية."
Quite a statement "ranked among the largest investment banks in M&A".

What was the basis for what might appear to be a rather extraordinary claim?

Reports from Thomson Reuters and Merger Market.

In TR's report on the first six months of 2010, Global was:
  1. 4th among financial advisors in M&A deals completed in the MENA region 
  2. 17th among international investment banks for deals completed in the EMEA region.
  3. 15th for deals completed in Emerging Markets
In MM's report, Global was:
  1. 6th among FAs for announced M&A deals in MENA during the first half of 2010
  2. The Bharti Airtel/Zain transaction on which Global acted as FA was the largest in the MENA region and 8th worldwide.
There's no dispute about Global's position in the league tables, which was due to a single transaction, Bharti/Zain.   Each transaction does count.  Global was Bharti's advisor and so has earned a place in the league tables.  But this single transaction is its only claim to league-table prowess.

And so like the local mutriba after her first big hit, it may be a bit premature to claim to be the next Fairouz or Umm Kulthum,   One may well turn out to be, but the claim will only be proven by repeat performances.   

Now I'd repeat what Global says in its press release:  it is the only GCC or MENA firm to make the list.  So maybe Global might more properly see itself as a regional leader in M&A (though I'd still contend that it had to have repeat performances to qualify at that level).  Not Kawkab Al-Sharq but perhaps Kawkab Al-Khalij.

To be fair,  let's trundle off (electronically, of course) to Thomson Reuters highly intelligent Deals Intelligence Site to take a first hand look at the 2Q10 Global M&A Report.  And by doing so, get a bit of context.

A few factoids from that visit.

M&A Volume for the First Six Months of 2010

Announced - US$1.065 Trillion / Completed US$811 billion
  1. Americas:    US$523 billion / US$405 billion
  2. Africa/ME:  US$  42 billion / US$  32 billion
  3. Europe:        US$269 billion / US$200 billion
  4. Asia Pacific: US$199 billion / US$114 billion
  5. Japan:            US$  32 billion  / US$ 60 billion
Anyway you slice it Global's US$10.7 billion in 2010 transactions are drop in the vast ocean of all deals. 1%.   It did have a good sized share among Africa/Middle East deals - 25% Announced Deals and 33% Completed Deals - but Mr. Al Sumait is claiming that Global is among the  leading global investment firms in M&A.  Not that it's a leading firm for Africa/Middle East M&A.   

As the table shows, Africa/ME is rather small beer in the M&A world representing 4% of announced deals and completed deals. 

Let's look at this from another angle - the top 25 advisors for worldwide M&A.

Top 25 Global M&A Advisors
  1. Global's name does not appear either in Announced Deals or Completed Deals.
  2. The top ten firms (led by the perennial leader Goldman) had between US$213 billion to US$112 billion in announced transactions and US$169 billion (Goldman again) and US$60 billion in completed transactions. UBS was in 10th place Announced Deals with US$112 billion.  And Rothschild in 10th place in Completed Deals with US$60 billion.
  3. The advisory firms in 25th rank Jeffries (Announced) and Blackstone (Completed) had respectively US$21 billion and US$14 billion in transactions.
Generally the first ten firms are considered the leading firms. Unless one is prepared to define "leading" investment banks in a very generous way Global again fails to make the "cut". 

 Top 25 Financial Advisors for EMEA M&A
  1. Deutsche Bank holds pride of place in Announced Deals with US$94 billion with Citi at US$45 billion in 19th place.  
  2. For Completed Deals it's Morgan Stanley with US$85 billion.  JPMorgan  is in 10th place with US$50 billion.
  3. Global makes its appearance in 23rd place with US$11 billion in transactions for Announced Deals (up from 220th the year before) and 17th place for Completed Deals. Well out of the magic circle of the top ten.
In this category, Global can make the claim that it has made substantial progress - but on a regional not global level.  As I said above, the real proof will be if Global's name is in the list next year.  But until it cracks the top ten it won't be a leader but a second tier player.

Can anyone out there remind me what Global earned on the Bharti transaction?  Earnings are very important in this business.  For the first six months of 2010, the Company reported advisory related fees of KD1.9 million up substantially from the KD0.3 million it earned in 2009.  That's a 638% increase.  One would hope the fee on a US$10.7 billion would be a "bit" more.  Maybe we'll see the full force of the fee in the 3Q10 financials?

And finally at the end of the Global press release, you'll find links to Thomson Reuters and Merger Market reports which can give you an insight into the general M&A market.

Sunday 22 August 2010

Gulf Finance House - Plans to Increase Capital By Up To An Additional US$300 Million

GFH announced on the BSE today that its Board had decided to recommend that shareholders approve a n up to US$300 million increase in capital.   The Board has delegated executive management to take the necessary steps.  A shareholders meeting will be called in the near future as soon as the required regulatory approvals are received.

Thursday 19 August 2010

Investcorp to De-List London GDRs


Today Investcorp announced on the Bahrain Stock Exchange that it intended to de-list its London GDRs citing as a reason:
In the period since the Secondary Listing of the GDRs, there have been significant changes in financial markets and the pattern of trading shares. The volume of GDRs traded on the London Stock Exchange over the last 12 months has been minimal and Investcorp does not believe it is cost effective to maintain the Standard Listing on the London Stock Exchange.

Zawya Dow Jones quoted an Investcorp spokesman who noted:
"While Investcorp continues to have a wide range of international shareholders, in changed market conditions the secondary GDR listing in London simply no longer adds value in terms of additional liquidity or research following," a spokesman for Investcorp told Zawya Dow Jones Thursday.
A review of the periodic reports of the Bahrain Stock Exchange reveal the following "extensive" trading in the shares of Investcorp on the BSE:
  1. 2009 Annual Trading Bulletin:  For the entire year, there were just 2 transactions for 548 shares representing 0.069% of the outstanding shares of Investcorp.  (Investcorp has 800,000 outstanding shares of common stock). The total for both transactions  was BD307,529, roughly US$814,952. By contrast in 2008, a total of 1,431 shares (0.179% of outstanding common shares) were traded (30 transactions) for BD1,462,491 (US$3,875,601) and in 2007, a total of 5,905 shares (0.738% of common shares) (32 transactions) for a total of BD5,509,677 (US$14,600,644). 
  2. 1Q10 Quarterly Trading Bulletin: 1 transaction for 550 shares in an amount of BD308,651, roughly US$817,925).
  3. 2Q10 Quarterly Trading Bulletin:  No trades at all.
  4. July 2010 Monthly Report (the latest on the BSE):  No trades.
  5. To be clear none of the above constitute trading even 1% of  Investcorp's shares.  This pattern of light trading is to be crystal clear not just an issue with the shares of Investcorp but is pretty widespread on the BSE, which is why Investcorp devised its GDR program back in 2006.
So, I find it a bit hard to take this story at face value. Certainly Investcorp is not in dire financial straits and therefore does not need to cut expenses at the cost of reducing liquidity for its shareholders.  Is the problem one of the market price.  If the shares trade on the LSE more frequently, they may drift lower.  Liquidity can work two ways with stock prices.

Here's a link to the Investcorp GDR page at the LSE.

A few interesting other items:

In April this year, Investcorp announced it had signed a deal with two holders of Investcorp GDRs to buy them at US$5.00 per share.  In case you're wondering that's about US$0.24 over the offer price announced today, but then markets are down since April.  Interesting that having had a problem raising common equity not so long ago that Investcorp would be buying back common equity.  Wouldn't it make more sense to buy back expensive preferred stock?

If you recall, Investcorp has a special approval from the Central Bank of Bahrain to hold up to 40% of its outstanding shares as Treasury Shares.  And if not, it's outlined on page 28 in Investcorp's 2009 Audited Financials.  That is, just coincidentally, the free float on Investcorp's shares which you'll see outlined on the same page.

I wanted to check what level of Treasury Shares that Investcorp was holding but couldn't immediately find their Quarterly financial reports on their website.  Can anyone out there help me?

Monday 19 July 2010

UGB to Purchase Burgan Bank Shares at KD0.390?


Citing informed sources, Jamal Ramadan over at AlWatan reports  that UGB will purchase the additional 13% of Burgan shares using an auction mechanism.  The contemplated starting bid is reported to be KD0.390 per share. 

Three separate tranches are envisioned.  The first two for 5% each and the third for 3%.

I'd like to note the following which I hope will put the purchase into perspective:
  1. BB last traded at KD0.390 or higher on 24 March 2010.
  2. During April this year BB offered new shares amounting to a 35.47% increase in capital at KD0.280 fils per share.
  3. The KD0.390 starting auction price is a 16% premium over 18 July's close.
  4. An auction process where the buyer's starting bid is KD0.390 is likely to result in a higher price.  
If successful, the auction will lift BB's share price having a favorable impact on its collateral value and allowing selling shareholders to cash out at a nice profit.  Particularly those who bought shares at KD0.280 in April.  

Over the past three or so months the KSE  Index has, if I'm not mistaken shed some  1,000 points.  This sale marks a truly unique value creation event.

Tuesday 6 July 2010

The Investment Dar - Good News? Aston Martin Planning a Stock Offering


If the report in AlQabas (which quotes the Internet financial site, City AM,) proves to be correct, there could be some very good news for TID and its eager creditors.

David Richards, Austin Martin's Chairman, is quoted as saying that AM is considering an IPO with valuations mooted in the GBP 1 billion range.  Or a tie up with another manufacturer.

And the news couldn't have come at a better time for TID as the Central Bank of Kuwait carefully considers E&Y's "fateful, final" report on TID's financial position and its ability to meet its obligations under the proposed restructuring as the basis for its decision on letting TID enter the "safe harbour" of the FSL.

Of course, there can be many a slip twixt cup and lip, particularly when one is only at the stage of considering an IPO.   

One might, I suppose, also wonder about the credibility of this source which believes that Austin Martin "is majority owned by the Kuwaiti sovereign wealth fund Investment Dar, which bought it for £503m from Ford in 2007." 

Thursday 27 May 2010

The Curious Case of Al Thouraia Project Management Company WLL


This company has come up more than once in earlier posts on Global Investment House ("GIH"). 

Today it's time to take a closer look. 

Documents related to the Offering of AlThouraia can be found here. If that doesn't work, go to GIH's website.  Click on the Investor Relations tab. And then Global News. And then scroll down to 2 June 2008.

On 2 June 2008, with great fanfare GIH announced this KD180 million (US$630 million or SAR 2.5 billion) private placement.
Global announced the launch of Al-Thouraia Project Management Company's capital increase to KD180 million.  Al-Thouraia shall be utilized as a Special Purpose Vehicle (SPV) to invest its whole capital in Mazaya Saudi for Commercial Investment Company "Mazaya Saudi", which has been incorporated in the Kingdom of Saudi Arabia, and will be managed by Mazaya Holding Company "Mazaya". Global Acts as Lead Manager Al-Thouraia Project Management Company. Mazaya Saudi will operate as a real estate development company in the Kingdom of Saudi Arabia in order to capitalize on the opportunities available in the Saudi Arabian real estate sector, which is known to be a vibrant, growing and a lucrative market.  Mazaya Saudi will have a paid-up capital of SR2.5bn.  Mazaya Saudi shall conduct its business in accordance with Islamic Shari'a.
The Al Thouraia Summary outlined the attractiveness of the deal:
  1. The market opportunity in Saudi. 
  2. Strategic partners from Kuwait (Al Mazaya Holding) and Saudi (Abdullatif Alissa Group and Abdulaziz AlAjlan) plus some unnamed other strategic investors. As noted in GIH's press release above, to include Global itself. 
  3. Excellent promised financial results: An IRR of 20.1% with solid cashflow -- an average dividend payout ratio of 60%. All achieved with moderate use of debt. Leverage ratio (no more than 35% at its peak). 
  4. As well as the prospects of a liquidity enhancing listing on the Saudi Stock Exchange.
As is common, the "teaser" was accompanied by a Private Placement Memorandum . That link will take you to the copy posted on GIH's website. Surprising for a deal this size, this document is rather disappointing. Certainly, this is not as polished or professional as efforts by say Arcapita or Investcorp – two firms that I would expect GIH considers its peers. Perhaps, this is an earlier version which was revised later. Perhaps, this fundamentally reflects on the relative state of Kuwaiti regulations vis-à-vis some other GCC states?

As I read it, some items caught my eye. And some did not – that is, while I was expecting them, they didn't appear. 

The language and content of the Disclaimer need work and tightening. No doubt for some a technical quibble. But how one deals with the details is often a good indication of how one deals with the big picture.  The sort of thing a professional looks at to gauge the professionalism of his or her competitor.

The Term Sheet is rather short and incomplete. It should discuss all significant aspects of the deal, thus, providing the investor with a summary snapshot of the transaction in a single place. Besides the financial aspects, the identity of major parties, relationships/contracts among them, expenses and fees, length of the Offer including various steps, e.g., Offer Period, Allocations, Issuance.  And so forth

The Saudi Real Estate Market section does not discuss major items such as:
  1. Laws and Regulations affecting a landlord's right and ability to increase rentals, including requirements, timing, procedures.
  2. Commercial Issues:  The types of leases commonly used in the Kingdom, e.g., short or long term, escalation and early termination/cancellation clauses, whether operations and maintenance are separate from rental and what controls exist on increases in those critical cash outflows, etc.  The prevalence of rebates, decorating/finishing allowances to tenants, etc in the market.
  3. Legal  Issues including mechanisms for challenges to rental and fee increases.  The ability, procedures and timing to evict of clients in breach, etc. 
  4. Status of Mazaya Saudi.  There is a disconnect between the press release  ("has been incorporated") and the PPM ("being established").  A small point admittedly.  One simply explained no doubt.  But one wonders why the two weren't conformed.
  5. Mazaya Holding Kuwait:  On Page 25 we learn that Mazaya Saudi will be "positioned to leverage on Mazaya Holding (Kuwait's) competitive market advantage". One that provides as we are told an "absolute advantage against competition". Certainly an enviable position to be in for this Kuwaiti Company not only in its home market but in what is for it the relatively new market of Saudi Arabia.  On Pages 26 -28, we get more details on the remarkable Mazaya Holdings. Formed in January 2004, it has 18 projects – of which it has completed a grand total of 4.  Of the 4, there is the 22 storey Global Tower, 32 villas in the Al Maha Project, the Al Roya Tower and 6 buildings in Dubai Healthcare City.  With these major accomplishments under its belt, it already enjoys an absolute advantage. Imagine its market position today. I'm guessing The Donald may be its latest apprentice. He's going to have to hustle to make the cut!  Or "You're Fired!"
  6. Strategic Shareholders:  We also get a partial glimpse into the proposed shareholding structure. There's a list of three entities and the promise of other strategic investors. Perhaps for competitive or business confidential reasons the target holdings of each are not disclosed, though one might expect a prospective shareholder to wonder just what level of financial commitment these entities were going to make to the venture. 
  7. Management:  There's no mention of the proposed members of the Board and CEO, their CVs and  perhaps more importantly what rights the investor has in choosing them. Recall that the investor is a unit holder in Al Thouraia and Al Thouraia is the shareholder in Saudi Mazaya. Al Thouraia as an entity will vote for the Board at Saudi Mazaya.  And that is precisely where the assets and cash generation take place.  As an aside, I'd guess (note that word) that this structure is used to "get around" Saudi Capital Markets Authority regulations on floating shares in Saudi companies. The share flotation is outside the Kingdom and therefore outside the CMA's regulations. 
  8. Investor/Shareholder Rights: The usual enumeration of rights is missing. Such things as voting for the board and management, pre-emptive rights, requirements for the mandatory provision of periodic information (financials and otherwise) by the company as well as rights to demand information.  
  9. Use of Proceeds: No separate page. No real discussion. From Page 7 we see there is a 1% placement fee and 4% marketing fee – both non refundable. Unclear if this means that GIH earns 4% even if it doesn't place the Units? 
Risk Factors are Jenny Craig slim. 

At one level to the point of being obscure. I'm really not sure but it seems that what is being said regarding Regulatory Risk is that the investor only has to fear regulations that are "vague and incomplete in nature". Would that mean that a clear imposition of tax or a definitive cancellation of a permit would therefore be benign? 

On the other hand there are some very clear and very true statements here, such as "Future Performance is Difficult to Predict". 

Mostly though  there's a lot that I would have expected to see but didn't.  And to be fair it's not only in GIH's PPM but in many many others issued not just in the GCC:
  1. A clear statement that this is a speculative investment.  If you build it, they may not come.  This is after all spec real estate.  New developments. 
  2. Contractor performance issues:  If you hire them they may not build on time or to specification. 
  3. Availability and sufficiency of utilities and other public services. If you build it, you might not have electricity, water, sewage. And maybe no or  inadequate roads into the area. 
  4. Re-letting rental risk. If they move out, you may get less rent from the new tenant.
  5. A wider definition of competition – more than price:  quality, location, amenities, etc. 
  6. Increases in operating and maintenance costs above rental increases. 
  7. Structural Issues: an SPV in Kuwait stands between the investor and the income generating property in Saudi. Repatriation of funds. Potential tax issues. FX risks. 
  8. Potential Conflicts of Interest:  I was surprised that this wasn't discussed since Mr. Omar El-Quqa, EVP at GIH, was also a member of the Board at Mazaya Holding. As we learn in this press release from July 2007, GIH then sold some 48 million shares in MH, but remained the second largest shareholder with 5.5%. Perhaps, between July 2007 and June 2008, there were further changes in shareholding. I didn't see anything on GIH's website, nor in its first three quarterly reports for 2008. But I may have missed something. Depending on the various stakes the proposed Strategic Partners might hold, it would seem that good form would require some contemplation of potential conflicts of interest.In any case, I suppose we can conclude that GIH saw no conflicts of interest nor any potential for them and so rest comfortably. At the end of 2008, GIH reported in Note 19 (a) that it owned 21% of Mazaya. Note this year end shareholding is well after the private placement. And it may have been a Victor Kiam moment. "I liked the razor so much I bought the company". Having done the deal and seen more evidence of MH's absolute advantage, it may have seemed like a good deal to reacquire some shares.  In which case perfectly innocent.
  9. Material Contracts:  Summary of contracts with Mazaya Holding and any other parties.  All fees they are entitled to. On Page 35 we see they get an annual fee of 0.75% of paid up capital. KD1.35 million a year seems a rather small incentive for MH to apply its "absolute advantage" for Mazaya Saudi instead of for its own projects where it gets to keep the lion's share of the profits.
As we know GIH's placement effort was successful, though I couldn't find a press release on GIH's website. In fact there seems to have been almost total radio silence on the topic going forward. No mention in its 2008 annual of its great success in raising KD180 million. No press release. But then I may have not looked hard enough. The only GIH driven publicity I could find was a Bloomberg press item referring to advertisements that GIH placed in the Kuwaiti press in November 2009. Those trumpeted the fact that the Appeals Court had ruled it was not guilty in a civil case brought by a Japanese real estate firm regarding this transaction. There were, to be fair, the mandatory disclosures in GIH's financial reports.

Subsequent to the Offer, Al Thouraia placed roughly KD83 million with GIH in an "Islamic" transaction. A KD43 million deposit was also placed with a Kuwaiti bank. It's unclear to me why the funds were not immediately transferred to Saudi Mazaya. The 2 June 2008 press release was clear. "Al-Thouraia shall be utilized as a Special Purpose Vehicle (SPV) to invest its whole capital in Mazaya Saudi for Commercial Investment Company "Mazaya Saudi". And we're told on Page 24 that among its other activities, Mazaya Saudi would engage in Portfolio Management to "amplify shareholder value". No mention that Al Thouraia would do more than invest in Mazaya Saudi.  So shouldn't investments, if any, be in Mazaya Saudi's name?  The need for the funds in Saudi would seem to be manifestly urgent. The PPM (Page 24) discloses that Saudi Mazaya intended to begin work on three projects the first year. What better preparation for that than to get the funds in Saudi so they would be ready to be employed?

Perhaps, out of caution in a deteriorating market, the Board at Al-Thouraia decided it would be wise to keep the money in Kuwait where it would be safer. Perhaps just about the same time that the Board at Global MENA Financial Assets decided to park a significant portion of its assets and liquidity at GIH. Two rather strong market endorsements of the financial stability and security of GIH. A possible example of the market phenomenon known as "a flight to quality". And as I've noted before both entities were well positioned to well understand the financial condition of GIH.

Anyways let's follow the story using GIH's 2009 financials
  1. Note 24 Page 57: It seems that a KD43.3 million AlThouraia deposit with a local bank was offset by that bank against a loan made by that bank to GIH. It's unclear to me what the legal basis for this offset is. Did AlThouraia guarantee the loan made by the bank to GIH? If not, how does the bank cross legal entity lines? Particularly, if GIH only owned about 83.36% of AlThouraia, what is the basis for stiffing the minority shareholders on the offset? There are all sorts of theoretical possibilities. And without picking one, let me just list some of them. Was the problem at the outset, when the deposit was placed? Perhaps, Kuwait doesn't have an ironclad "trust" law covering such deposits? And GIH placed the deposit with the bank "in trust for Al Thouraia" only to be rudely surprised later? Perhaps, there was an innocent clerical error about the name of the bank account holder when it was set up? Perhaps, the funds were mistakenly described as collateral? I'd appreciate a post from anyone out there with any insight on this. 
  2. Note 25 Page 57: GIH acquired Al Thouraia through an asset swap – a non cash transaction. The assets exchanged are described on Page 58. It would be interesting to know if Al Thouraia's Articles of Association provided for Al Thouraia conducting the sort of activity that this asset swap implies. Or if Al Thouraia's shareholders either approved this step and/or amended the Articles. In any case through this transaction, GIH acquired control.  In so doing it added KD28 million or so to its cash balance, and removed KD83 million in borrowings (from Al Thouraia) from its balance sheet on consolidation. Note GIH did not necessarily obtain control over that cash. And it's likely that the KD83 million in debt remained a legal obligation of GIH.  In addition to these benefits, GIH's shareholding also implied the right to disconnect the feeding tube.
As we learn in Note 5 to the Company's 1Q10 financials, on 14 March 2010, GIH liquidated Al Thouraia recognizing a KD0.824 million accounting profit, while experiencing a KD18.725 million cash outflow. What explains this rather perplexing move by a Company desperately in need of cash to pay hungry creditors? The liquidation extinguished GIH obligations in the amount of KD125.6 million. The rationale for KD18 million tradeoff is suddenly a lot clearer. 

It also closes the book on Al Thouraia. A story which GIH no doubt wishes to forget as well hopes that its clients and the market will as well.

As indicated by the title, a curious case indeed.  And one subject to many interpretations.

Wednesday 12 May 2010

Shaykh Sultan Bin Khalifa - Let's Make A Deal?

A very interesting post over at Rupert Bumfrey's blog.

Here's another link to the story at Moscow Times.

And an earlier one to the Times of London.

Let's see if more emerges.  Right now the story is a bit hard to swallow.

As far as I can tell this is still on the level of an accusation by one party in a rather bitter dispute with another.

Sunday 9 May 2010

Zain - Turkcell Negotiations with Major Shareholder in Progress


AlQabas reports that an unnamed Bahraini Investment Bank is acting as a middleman between Turkcell and major shareholders.  Starting price talk is KD1.5 per share.  Last time I looked Zain was trading at KD1.3 per share.  If I'm reading the last our words correctly وعند اي سعر  major shareholders sound eager to sell.

The sale results from an urgent need for cash and constrained financing from Kuwaiti banks.

Thursday 6 May 2010

Global Investment House - May 2008 GDR Issue


Like me you may have been intrigued by Abdul Munim's question at the shareholders' meeting about the owners of GIH's GDRs.  And you may be wondering a bit about the transaction.

Here's a link to the Prospectus.  
  1. The shares were floated at KD0.995 each.  Each GDR equal to five shares and offered at US$18.75.
  2. The shares currently trade around KD0.090 roughly a tenth of the offer price.  Book value is around KD0.133 per share.
  3. GIH's 2008 audited financials say that KD5.3 million was deducted from the proceeds as GDR expenses (page 59).  That makes the fee roughly 1.9% of total proceeds a very good fee indeed considering that the banks actually underwrote the deal.  For underwriting details see page 143.  Note the numbers there are for GDRs.  So the number of GIH shares they underwrote is 5 times the number shown.
As to details of ownership of the GDRs,  of course,  the Prospectus doesn't include this information for obvious reasons.  It was issued prior to the placement of the shares.

Nor for that matter does the info at the KSE answer the question.  Here in Arabic.  The English page doesn't have shareholder info for some reason.

As you'll see from the Arabic page, the GDRs are registered in the nominee names of BNY Nominees Ltd (7.092%)  and Bank of Mellon New York Nominees (11.429%).  So the identity of ultimate shareholders is not disclosed.  The GDR issue was for 306.7 million shares in rough numbers.  The 18.5% represents about 243 million.  So about 64 million shares not accounted for - presumably converted to regular shares?  Roughly about 4.9% of the total shares.

Thursday 22 April 2010

Mubadala US$2.5 Billion Refinancing

As announced yesterday, Mubadala successfully refinanced its US$2 billion loan.  Some additional details today courtesy of Gulf News.

While the margin increased from 17.5 basis points to 75, this is still a comfortable margin especially given current market conditions.  And as well the downgrade by Moodys in March to Aa3.

The facility was also well received.  US$4 billion in demand.  And it was up-sized (I just had to use that word) by US$500 million to provide a back-stop for refinancing under Mubadala's ECP program.

Thursday 4 March 2010

International Petroleum Investments Abu Dhabi Refinances US$2.5 Billion Loan

 

Gulf News reports that IPIC has refinanced a US$2.5 billion loan maturing this June with a three year term loan of the same amount.

The original loan was part of a US$5 billion financing announced 4 August 2009.  Two tranches each of US$2.5 billion.  Tranche A was a one-year facility designed to be refinanced with a capital markets issue.  At the time the market reported that pricing was 250 basis points for the first six months, then 350 basis points for the next six months.  And if extended beyond that date, 400 basis points.  Tranche B was a two year term loan, which at the time was reported to carry a 350 basis points margin.  Each lender had the right to agree a one year extension on its portion of the loan.

According to Gulf News the new loan is at 150 basis points margin with commitment fees of 150 basis points for commitments of US$200 million with lower fees for lower amounts.  

As described this doesn't sound like a traditional "commitment fee" but more an upfront underwriting/participation fee.  A one time "up front" flat fee.  Such a fee would vary directly with the size of the lenders' underwriting in the loan and final take.     

A traditional commitment fee (on undrawn balances) would be the same percentage for each lender but applied to the respective undrawn amounts of their commitments during some period, e.g., semi-annually usually.

Assuming a US$200 million take and that this is a underwriting/participation fee, a bank making a US$200 million commitment to the loan and holding that amount as a final "take" would have an asset with an effective margin of 202 basis points per annum - or 52 basis points over the stated margin.

Taking this story at face value, it shows that:
  1. Unlike Dubai, Abu Dhabi has access to the market and to term funds.  It has raised a three year loan to refinance a maturing one year loan.  
  2. The margin on the new loan appears to be much lower than on the previous loan.  Without knowing the front end fees on both loans, it's not possible to calculate the exact differential, but it appears to be substantially less on the refinancing - perhaps as much as 200 or more basis points.
  3. Capital markets are not offering an alternative for a take-out or not offering as attractive pricing as the loan market.  So IPIC has refinanced in the bank market.

Monday 1 March 2010

ABC Launches US$1.11 Billion Rights Offering


Details here.  Note offer price is par.  Key issue will be whether ADIA steps us to participate. 

Earlier post on Rights Offer here.

Wednesday 17 February 2010

Zain Press Release on Bharti Offer to Purchase African Assets


Here are the main points from the press release (Arabic only - which is below). Comments in  italics in parentheses are my interpretations.  To be clear: these are not in the press release.
  1. Zain has entered into exclusive negotiations with Bharti over the potential sale of some of its African assets and granted Bharti exclusive rights to conduct due diligence until 25 March 2010.
  2. If I've translated properly, Sudan and Morocco are excluded from the potential purchase.
  3. The potential sales price is US10.7 billion with US$10 billion due on contract and the remainder one year later based on certain conditions (probably earnings targets).
  4. There is a penalty (breakup fee) on both parties of US$150 million if the deal is not completed (with an out no doubt for Bharti related to reasonable due diligence satisfaction).
  5. The sale will have an effect of US$9 billion (not clear why the lower number - minority shareholders?) and after settling obligations the profit impact at a maximum will be US$5 billion which is expected to be realized in 2Q10.  
  6. It's up to the Board and an ordinary general meeting of shareholders to decide whether to distribute the profit or not.  (AA can think of at least two major shareholding groups that will be voting happily to distribute).
  7. Bharti's offer is subject to satisfactory due diligence and obtaining governmental, regulatory and/or similar approvals.


[7:54:47]  ِ.ايضاح من(زين) بخصوص عرض بيع زين افريقيا ‏
يعلن سوق الكويت للاوراق المالية انه استلم كتابا من شركة الاتصالات ‏
المتنقلة (زين) بشان عرض بيع زين افريقيا هذا نصه (بخصوص الموضوع ‏
اعلاه نود افادتكم بان مجلس ادارة شركة الاتصالات المتنقلة (زين) قد ‏
وافق على منح المفاوضات الحصرية بخصوص بيع زين افريقيا غير ‏
شامل كل من السودان والمغرب وحق القيام بالفحص النافي للجهالة حتى ‏
تاريخ 25-03-2010 وذلك بناءا على العرض المقدم من قبل شركة بهارتي ‏
ارتل لمتد .‏
ويتضمن عرض شركة بهارتي قيمة لشركة زين افريقيا بما يقدر ب10,7 ‏
مليار دولار امريكي على ان يتم دفع مبلغ 10 مليار دولار امريكي عند ‏
اتمام الصفقة ومن ثم مبلغ 700 مليون دولار امريكي تدفع بعد سنة من ‏
اتمام الصفقة مع وجود شرط جزائي على الطرفين قدره 150 مليون ‏
دولار فى حال عدم اتمام الصفقة .وينتج عن ذلك حقوق للمساهمين بحدود ‏
ِ9 مليار دولار امريكي .‏وبعد سداد التزامات محددة فان الشركة تتوقع ان تبلغ ‏
العوائد بحد اقصى 5 مليار دولار امريكي ، علما بان هذه العوائد فى ‏
حال تحقيقها من المتوقع ان تدخل فى حسابات الارباح والخسائر للشركة ‏
فى الربع الثاني من هذا العام ، اما قرار توزيعها من عدمه فهو قرار يخضع ‏
لمجلس ادارة الشركة والجمعية العمومية . هذا ويخضع عرض الشركة ‏
حاليا للفحص النافي للجهالة وسيتم بعدها اخذ الموافقات الرسمية (حكومية ‏
او هيئات رقابية او ما شابه ذلك) والتوقيع النهائي على مستندات الصفقة ،
ومن ثم عرضها على مجلس ادارة الشركة لاخذ الموافقة النهائية على اتمام ‏
الصفقة .) ‏
هذا وسوف تقوم الشركة بموافاة ادارة السوق باى جديد بهذا الخصوص .‏



Saturday 6 February 2010

Esterad Rumored to Have Pulled Convertible Bond Issue


I heard that Esterad has announced that it is withdrawing its BD 7 million  (US$18.6 million) convertible bond offer and that the Collecting Bank (BBK)  will be returning subscription funds to investors.  I didn't see anything in the Bahraini press, though to be candid, I did not do an "e" - search. 

Earlier Esterad had extended the period for subscriptions saying that several institutional investors had asked for more time to complete due diligence.  At that time, I  took that to be a strong indication of less than robust demand.

There should be something in the press tomorrow (meaning Sunday's paper) or an announcement at the BSE so until then treat this as a market rumor.

Monday 25 January 2010

Saudi Mortgage Law on the Way?

So says the Gulf News quoting Bloomberg quoting HE Muhammad Al Jasser, Governor of SAMA.

It might come as a surprise to many out there but there is substantial unmet demand for housing in the Kingdom.

This law will facilitate the mobilization of real estate finance, particularly for residential housing.  It will also provide alternative investment opportunities for local financial institutions.  

In 2006 Unicorn Investment Bank in Bahrain teamed up Standard Bank and the IFC to launch the first ever securitization of housing receivables in the Kingdom.  Here's the IFC's write-up on the transaction. It was a modest sized deal of some US$18.5 million.  But followed by further deals by UIB in 2007 (US$600 million and US$1,000) for Dar Al Arkan.  Here is the portal page to UIB's press releases on these transactions, if you're interested.

Monday 18 January 2010

Esterad Convertible Bond Offer Period Extended to 31 January


 

As per its announcement on the BSE today, Esterad has extended the offer period for its new convertible bond issue seven days (to 31 January) in response to a request by institutional investors for more time for due diligence.

Clearly, the issue is not flying off the shelves or Esterad would not be extending.  On a positive note, it's nice to see investors exercising a bit of due diligence before making a commitment.  Previous post here.

Wednesday 13 January 2010

ABC Rights Offering: Libya to Underwrite and ADIA May Not Participate




ABC posted a "Board Circular" concerning its proposed US$1.110 billion proposed priority rights issue of 1,110,000,000 common shares.   

This document contains some highly interesting information:
  1. Central Bank of Libya will underwrite the offer at quite an attractive fee. 
  2. ADIA may not participate in the Offer, thus reducing its stake in the bank from 27.6% to 17.7%.
  3. A strong signal that ABC is in the market to acquire a regional "universal" bank to diversify away from its volatile sub par wholesale businesses.
  4. A candid assessment of ABC by SICO.
More detail on those points below, but first an introductory "tafsir" of sorts.

The Central Bank of Libya has agreed to underwrite the entire rights issue.  Under a priority rights issue, shareholders have an absolute right to subscribe for and be allotted a sufficient number of shares to maintain their percentage shareholding in the Offeror.  They may of course subscribe for less than that amount (in which case they are absolutely entitled to that amount) or more (in which case the amount allocated to them above their minimum right will depend on the action of other existing shareholders).   In a situation like this an Underwriter agrees to purchase any unsubscribed for shares.

Since there is a high likelihood that enough shareholders will not subscribe for shares,  the Central Bank of Libya ("CBL") will very likely acquire enough shares under its underwriting commitment to trigger a mandatory offer requirement under the Central Bank of Bahrain Regulations Module TMA Takeovers, Mergers, and Acquisitions  Section 3.1.  ABC's Board is soliciting shareholder approval to waive this right as the CBL is not prepared to acquire the bank.

ABC's shares are currently selling at US$0.67 a substantial discount  to par, US$1.00.  Under Bahraini law, the Offer must be at par.  There is no straightforward way to offer shares at a discount from par.  This poses a real problem.  Why would a shareholder pay more for a share through an Offering than he would pay in the secondary market?  

Since the government-related institutional shareholders are presumably not  actively trading their shares, then ABC's share price is being driven by the private sector investors.   That suggests to me that retail investors are unlikely to be enthusiastic about acquiring more shares at US$1.00 when they could potentially buy them at the BSE for US$0.67.  Assuming of course they have any interest in acquiring more shares.  If that were the case, then one would expect ABC's shares to be trading near par - especially in an illiquid market like Bahrain where just a few trades can move the price significantly.

The government related entities have a different agenda and as well more detailed inside information to inform their decisions.

Let's turn to the Board Circular:

The first bit of information that jumps off the page is the comment about expectations of participation in the offer by the existing institutional shareholders who own 93.6% of the bank.  The Circular states:  "ABC expects Kuwait Investment Authority (“KIA”) and all the Libyan entities to subscribe to the rights entitlement in full."  There is one remaining institutional shareholder, Abu Dhabi Investment Authority, with 27.6%.  It would seem that it would be quite easy for ABC's Board to ask ADIA if it intends to participate.  And equally easy for ADIA to respond.   First, it's not like this is a surprise question.  Second, ADIA can move quickly on investment decisions.  After all, it decided to plunk down the modest sum of US$7.5 billion in an investment in Citigroup with three days "due diligence" though perhaps the outcome of that transaction has lengthened and strengthened due diligence procedures.  My guess is that this silence means that there is a very strong likelihood it has decided not to open its wallet.  Hence, the need for an underwriting.  Because if it has not, what is the point of the Board engaging an underwriter to cover 6.4% of the shares?  Especially given the proposed underwriting fee is greater than 6.4?

That leads into the second bit -  the underwriting fee.  As per the draft agreement Clause 4 (page 19 in the Circular):  "In consideration of the Underwriter agreeing to underwrite the Issue pursuant to the terms of this agreement the Company shall pay to the Underwriter a flat underwriting fee of US$ 110,000,000."  That is, CBL earns the full fee regardless of how many shares  it actually acquires.   Some simple math.
  1. This amount represents 10% of the total Offer.  
  2. But surely the Libyans know if they are participating, so if we remove their shares from the "risk of purchase column", then the CBL is getting US$110 million to take risk that it might have to purchase 63.7% of the Offer.  In this case the effective underwriting fee is a whisker short of 15.7%. 
  3. If it is reasonably certain that the KIA will participate, then CBL is really taking risk on 34%  of the Offer and earning an effective fee of  29.4%
  4. If the same holds true for ADIA, then CBL is taking risk on 6.4% of the Offer and earning an effective fee of 156.3%.
  5. You will recall I said above that there was no straightforward way to offer new shares at below par.  What's interesting here is that the KIA has apparently not objected to this mechanism and is content to purchase its allotment at par.  Presumably because it does not wish to increase its shareholding.
Let's look a bit more closely at the effective discount on the shares.
  1. If every existing shareholder steps up for its shares and there is no risk of their not doing so, then the Libyan Group as a total acquires 403,395,812 shares for US$403,395,812 and receives US$110,000,000.  The effective discount is 27.3%.  This is the maximum discount.
  2. If the KIA participation is certain but the remaining shareholders' participation is not, then CBL acquires 780,465,916 shares for US$780,465,916 and the effective discount is 14.1%.  (In case you're wondering I allocated the "missing" share in the Table on Page 12 to the Libyans).  This is the minimum discount.
  3. Note in the cases mentioned above, I am assuming that if there is no risk of participation by a shareholder then the underwriting fee earning on those shares is in effect a disguised discount for CBL.
    The third item is that from the discussion of the use of proceeds and the recommendation of the independent consultant. It's clear that in addition to organic growth ABC is looking to achieve its business transformation through the purchase of a stake in a universal bank. It's a bit early to speculate on potential targets.  Or is it?  Anyone out there who wants to nominate a target, please post a comment.

    Those who know their ABC history know that this was the strategy at one point.  Under Abdulla Saudi, ABC bought significant shares in Banco Atlantico (Spain),  International Bank of Asia (Hong Kong)  ABC Brazil and Daus (Germany).   These were acquired I believe largely because at that time it was not possible for ABC to acquire MENA banks.  As well, Abdulla's strategy was to build a truly global Arab bank "champion".  According to my analysis, some of these (Atlantico , IBA) were disposed of  later (early part of this century) or stakes reduced (Brazil) to raise cash to help ABC over a rough patch so that it would not have to raise capital.

    The final item is the review of ABC by SICO which discusses subpar performance relative to peers 6%. to 10% ROE versus to its peer's 15% to 30%.  Well worth a look.

    The fundamental strategic issue that any of the commercial banking oriented wholesale banks (former offshore banks) in Bahrain face is that they do not have the solid foundation of a domestic business.  That affects both sides of the balance sheet.

    They do not have a natural "home" market to develop assets.  They must go abroad to develop these.   (Note:  Since the Bahrain market is relatively small, even a domestic bank cannot develop a very large domestic business platform).  Usually, the foreign lender who rides into town has a set of unpalatable choices to develop any sizeable business.  It can be the "stufee" on loans underwritten by the local banks.  Then it gets a participation in a loan but very little or none of the ancilliary business that the home banks get.  Such loans will be priced at razor thin margins over a domestic base rate.  Foreign lenders like Bahraini banks (as opposed to say foreign banks from Europe with a strong domestic base) don't have access to the same funding at the same price so the miniscule margins are compressed even more.

    If that is not palatable, the foreign bank can go downmarket to chase yield.  But here as a foreigner usually operating out of an office in New York City, it is hard put to understand such credits or to monitor them.   Thus, it winds up making a lot of bad underwriting decisions.

    Another option is to load up on bonds instead of loans.  Both Gulf International Bank and ABC did that, relying on ratings and professionalism of the investment banking firms who sold them investment grade (at least nominally) sub prime securities.  Both lost $1 billion in 2008 with GIB's losses apparently even more (hence the sale of some US$5 billion of assets to shareholders).

    The one potentially attractive business line is specializing in banking services for foreign customers in one's "home" market.  But here there is another disability, an offshore or wholesale bank in Bahrain cannot provide the same service as a retail or onshore bank in Bahrain.  And of course competing against a National Bank of Kuwait or Samba for business in Kuwait or Saudi is even more difficult.

    The picture is not much better on the liability side.  Instead of a core of very stable and generally lower cost retail deposits, the foreign wholesale bank is dependent on bought money (interbank deposits) and placements by its shareholders (a form of disguised or quasi equity which of course earns very low returns relative to its equity like risk).  This means that funding costs are higher and more volatile.

    Finally as offshore banks, generally there is no assurance of support from the Central Bank of the country.  This is true with wholesale banks in Bahrain whose size dwarfs the local banking sector.  Simply put, Bahrain does not have the resources to stand behind these banks.  Now, when there are governmental shareholders, the bank does not suffer as much in terms of ratings and funding costs as say those banks which do not have such shareholders.  But it still operates at a disadvantage.

    This was the reason that Abdulla Saudi, a much under appreciated banker in some quarters, embarked on his acquisitions of Atlantico, IBA, etc. as discussed above.  

    Tuesday 5 January 2010

    BSEC Firing on All “Cylinders” – Another ABS Auto Deal



    BSEC announced another automobile related ABS deal. This time for Bassoul & Heneine.

    This is the second ABS for B&H – "Cylinder II".

    The structure is a mirror image of Rymco. And again the issuer is holding Tranche B.

    Here's the earlier press release on Rymco Drive 1.   And earlier post.

    Cylinder II has been terms - lower price and longer tenor.  This is probably reflective of a combination of things:  better market conditions and the fact that Rymco Drive was a debut issue.

    BSEC also has issued some interesting publications on securitization and related issues in Lebanon.

    Kudos again to the fine folks at the BEMO Group and the even finer distinguished banking family of Obegi.

    Thursday 24 December 2009

    Esterad Bahrain Offers Convertible Bond

    I thought that readers might find the transaction description of interest.  So here's the link.

    The announcement provides a description of several of the requirements/features under Bahrain law:
    1. Shareholder pre-emptive rights
    2. Renunciation of those rights
    3. Conversion mechanism (See comment below)
    Regarding the conversion, you will notice it is at the option of the bondholder not the issuer.

    And you will notice the strike price mechanism provides the buyer a bit of protection.  If the book price (and note that is not the same as the market price) goes below BD0.365 per share, the bondholder may convert at the book price.  Current trading range for the shares is around BD0.300 and the book value is close to the strike price.